The Fair Credit Reporting Act (FCRA): Background …

1 The fair Credit Reporting Act (FCRA): Background screening and ComplianceA white paper on how to be compliant with FCRA Background screening requirements. Copyright 2007, by ADP of North America, Inc. The ADP Logo is a registered trademark of ADP of North America, fair Credit Reporting Act (FCRA): Background screening and ComplianceIn the aftermath of heightened security risks, workplace violence incidents and negligent hiring lawsuits, employers have turned to Background screening for peace of mind and a way to decrease liability.

2 Employers are using criminal court records, driving records and other consumer reports to hire safe, honest and qualified a large number of employers, pre-employment Background screening has become a permanent part of their hiring process. According to the Society for Human Resource Management (SHRM), eight out of ten employers complete criminal Background checks on applicants before hiring them. This represents a 30% increase in Background screening from 1996. However, in this age of increased surveillance and security, applicant rights and the laws protecting individual freedoms could easily be forgotten.

3 How do employers balance their need to know about applicants backgrounds while simultaneously upholding individuals rights? How does the federal fair Credit Reporting Act (FCRA) affect employers who use Background checks?This white paper is a must read for employers concerned about selecting the right people while simplifying the legal aspects of Background screening . You will gain an integral understanding of the FCRA provisions as they pertain to employers and Background screening . Summaries of federal regulations amending the FCRA as well as easy-to-implement steps for compliance are also included in this white paper.

4 History of the FCRAIn order to grasp the general goals and intentions of the FCRA, it is worth taking a brief look at its history. The bill that would eventually become the FCRA was originally proposed as an amendment to the Truth in Lending Act in 1968. Although it did not gain the necessary number of votes to be enacted, it shed light on the growing need for legislation to address the abuses of consumer Credit Reporting and to protect the confidentiality of the information consumer Reporting agencies collected. As is still the case today, government and private agencies compiled and maintained an astonishing amount of information about individuals.

5 Concerned citizens and legislators reasoned such convenient, unrestricted access to personal data made people susceptible to fraud and persecution. The FCRA became effective on April 25, 1971 as one component of the federal Consumer Credit Protection Act. The FCRA regulates the activities of consumer Reporting agencies, employers and others who use consumer reports. Moreover, the FCRA guarantees certain rights for individuals affected by Background screening reports and other types of consumer reports. In the past decade, legislators have passed several amendments to strengthen the FCRA and make it applicable to modern times.

6 In essence, the focus of the FCRA is to protect Americans privacy rights and to hold consumer Reporting agencies accountable for the accuracy and fairness of Credit Reporting and other information. Section 602 of the FCRA states:It is the purpose of this title to require that consumer Reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer Credit , personnel, insurance and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title.

7 The FCRA regulates the use of reports obtained from consumer Reporting agencies. As such, the FCRA also regulates consumer Reporting agencies, employers ordering Background screening reports from third party providers and furnishers of consumer Reporting Copyright 2007, by ADP of North America, Inc. The ADP Logo is a registered trademark of ADP of North America, FCRA TermsAs with most laws, technical jargon is inherently a part of the FCRA. Therefore before delving too deep into this white paper, it is important to define key FCRA terms to bridge Obligations Under the FCRAIn 1997, the FCRA was modified to increase the legal obligations of employers who use consumer reports/ Background checks.

8 Congress amended the FCRA and expanded employers screening duties out of concern for applicants unfairly denied employment because of incomplete or inaccurate consumer reports. According to the Federal Trade Commission s (FTC) Using Consumer Reports: What Employers Need to Know, employers are responsible for 1) ensuring applicants are aware consumer reports may be used for employment purposes and agree to such use and 2) notifying applicants immediately if information contained in their consumer reports may result in a negative employment main provisions of the FCRA pertaining to employers who use consumer reports are described below.

9 Reputable Background screening providers should be able to assist you with each of these FCRA requirements by providing necessary forms, compliance consultation and adverse action notification and Disclosure Prior to ordering Background checks, applicants must be notified in writing that your organization may obtain a consumer report for employment purposes. The FCRA requires this notice to be a separate, clear and conspicuous document. This is true even if it is part of an employment application notification is specifically referred to as the Disclosure to Employment Applicant Regarding Procurement of a Consumer Report or the notice and disclosure.

10 It is a recommended best practice to have applicants sign the notice and disclosure as proof they acknowledge your organization may complete Background checks on them. AuthorizationSecond, employers must obtain applicants or employees written authorization before ordering Background checks. Under the FCRA, the authorization does not have to be a separate document, but the notice and disclosure must still be provided to applicants as a separate, distinct document. Consumer: Reporting Agency: a person, for monetary fees or dues assembling or evaluating consumer reports for third parties, and which uses any means or facility of interstate commece for the purpose of preparing or furnishing consumer reports.